“What were they smoking?” asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose.
The answer, of course, is that they were high on the usual drug — greed. And they were encouraged to make socially destructive decisions by a system of executive compensation that should have been reformed after the Enron and WorldCom scandals, but wasn’t.
So opens former Enron advisor Paul Krugman's column, a study in how not to persuade. Krugman buries his good ideas under a layer of over-simplification, asides, and self-congratulation.
Over-simplification
"The answer, of course, is that they were high on the usual drug — greed." The answer. The one, single answer. The only possible answer. The alpha and the omega. As soon as I read the sentence, I feel Krugman trying to be too sweeping. He seems to be implying that the answer is to abolish greed, which is as likely to work as abolishing selfishness, hunger, or self-aggrandizement by newspaper columnists.
Self-congratulation
Krugman writes:
In a direct sense, the carnage on Wall Street is all about the great housing slump.
This slump was both predictable and predicted. “These days,” I wrote in August 2005, “Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.” It wasn’t.
Whee - Krugman works in his own brilliance. So how does this expand my understanding of the current situation? It doesn't feel like it does - rather it seems like a gratuitous bit of self-love. More persuasive would have been for the author to show us the external signs of doom that the fools didn't see. Because he doesn't offer that, Krugman seems to be saying that the only way to avoid future disaster is for everyone to listen to him - hubristic, especially coming from a former Enron advisor.
Asides
In fact, the entire sub-prime mortgage debacle is tangential to Krugman's real point - that corporate titans who make bad calls don't pay for it. This is a great point and deserves serious treatment, which Krugman fails to give. It's also a point that transcends the current crisis. Dwelling overmuch on subprime lending obscures that more universal point.
When he makes a good point - for example:
...[T]here’s a pervasive loss of trust, which is like sand thrown in the gears of the financial system. The crisis of confidence is plainly visible in the market data: there’s an almost unprecedented spread between the very low interest rates investors are willing to accept on U.S. government debt ... and the much higher interest rates at which banks are willing to lend to each other.
...it's easy to overlook because of the chaff. Yet it's a great point, and he quickly backs it up, not by quoting himself predicting it, but by offering us a look at "the market data" - score one for the otherwise slumbering economist trapped deep inside Krugman.
And finally, he gives the market the finger by suggesting that the way to fix the underlying problem - that "[t]he huge rewards executives receive if they can fake success are what led to the great corporate scandals of a few years back" - is some sort of vague "political" solution.
Right. Campaign finance legislation has been profoundly ineffective at driving the money out of politics, so we should do what - copy that failure and try to legislate away greed? Krugman, having filled the column with fluff, can't or won't say. The only strong conclusion he even implies is that there is no market based solution. A curious conclusion for an economist, but par for the course for a former economist turned emotion-based, second-rate political hack.
Dear Mr. Krugman, please raise the bar on yourself. This column is beneath your abilities.
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